In a move designed to help parent company eBay gain traction in the world’s fastest-growing e-commerce market, PayPal inked a deal this week with China’s largest municipal government to allow it to offer a foreign exchange settlement service to Chinese entrepreneurs selling to overseas consumers.

The agreement with the Chongqing government in southwest China includes a partnership to set up a foreign exchange settlement solution and five international e-commerce centers during the next few months, according to PayPal.

The program is designed “to help Chinese merchants find a way to conduct cross-border trade,” PayPal spokesman Dickson Seow said. PayPal will provide information on how to obtain cross-border trade licenses and handle other paperwork required by the Chinese government, he added.

“The smaller Chinese small enterprises and entrepreneurs have no idea how to get all of this done,” Seow said. “It’s quite a lot of work.”

PayPal, the world’s largest online payment platform, which supports 24 currencies and has more than 90 million global users, hopes to expand the service across China later in 2011.

“We expect that a faster, simpler foreign exchange conversion process will be a big boost to millions of small businesses and entrepreneurs in China who want to grow by selling their products to the world but are unsure on how to bring their payments from global buyers back into China in a timely, efficient manner,” Chris Yao, vice president of PayPal Greater China, wrote in a blog post. The new service could expand cross-border trade for Chinese businesses, he added.

The deal could boost eBay’s business in China. Though the San Jose online auction company entered China more than a decade ago, it lost most of its market share in the emerging economy to local competitor Taobao, which is part of the Alibaba Group, which is partially owned by Yahoo. A few years ago, eBay began focusing on cross-border trade and says about a million merchants in China, Hong Kong and Taiwan use its services.

The new service could increase the competition between eBay and Alibaba. In recent months, Alibaba has looked for ways to partner with eBay and Amazon.com, and its executives have said they have no plans for now to expand Taobao to the United States.